Answer to Question #236398 in Macroeconomics for Thinker

Question

•With the aid of diagram(s), assess the effects of a 

reduction in the tax rate on equilibrium income 

and interest rate within the IS-LM Model.

Answer 1

Reduction of tax rate will increase income since some of the income that could be used in paying taxes would be retained. This will similarly increase the interest rates as it raises equilibrium income.